News & Analysis

Covid-19: Economic Damage and Central Banks Decisions

August 3, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

Amid a busy economic calendar, the fears of a second wave of coronavirus are mounting forcing market participants to look for some evidence of a reversal or stalling in the improvement of economic data seen in May or June. Many countries have seen a surge in the number of infections over the weeks and now Europe is under the radar following a few clusters of cases. Attention will remain on central banks and governments actions in the face of another round of social restrictions in certain countries.

United States

Last week, the preliminary GDP figures showed that the US is poised to shrink by 32.9% – the deepest decline in decades. The pandemic continues to wreak havoc across the globe and the outlook for the third quarter remains murky. It will be a busy week ahead with employment data and PMI figures standing out. The mounting number of COVID-19 cases in the US will likely affect the purchase of new orders. We may, therefore, see a slow down in the pace of the rebound in the manufacturing sector. 

The US labour reports will also be closely monitored. After the drastic job loss in April, jobs reports showed some rebound in May and June. In July, unemployment is expected to slow from 11.1% to 10.7% despite the resurgence of the virus as the data will not reflect the weeks where certain states started rolling back the reopenings. 

Australia

The state of Victoria which is home to Australia’s second most populated city, Melbourne was plunged into a “state of disaster” on Sunday to fight the coronavirus outbreak. The Premier has also introduced a nightly curfew and other stricter restrictions. The RBA Interest Rate and Monetary Policy Statement meeting will be closely watched – we do not expect any changes in interest rates even though recently the Governor has expressed some views on a cut in interest rates to 0.10% if needed. However, we may see more QE given the soaring number of infections in Victoria. The Aussie dollar has remained pretty resilient despite virus woes. 

UK

Aside from the Manufacturing PMI on Monday, the Bank of England meeting on Thursday will likely gather some attention. Even though the UK is also facing some sort of restrictions given the rise in the number of coronavirus cases, the BoE is unlikely going to change its policy outlook this Thursday.

Equity Markets

Investors continue to remain focused on the spread of the virus,  the amount of stimulus and US earnings reports. Big US tech companies have defied the odds once again and performed strongly despite one of the worst pandemic seen in modern times. In the US share market, the focus will be on the next relief package. The outlook is uncertain as it is heavily dependent on the course of the virus. Investors will rely on more stimulus and interventions in the markets for support.

Commodities

Gold

Gold has been on an unstoppable rally recently as investors are hedging with safe-haven assets given the ongoing uncertainty and geopolitical tensions. The fears of a second wave and the prospects of rolling back reopening measures are overshadowing the recovery outlook. The path of the global economy remains dependent on the course of the virus. After the XAUUSD pair broke the record high seen during September 2011 and rose to an all-time intraday high at $1,981, a tech rally and positive vaccine updates have toned down the bullish momentum. 

However, the fundamentals remain bullish even if gold traders may expect to see some correction. In the face of uncertainties, gold is gaining momentum due to a number of factors ranging from the global economic crisis, US election, stimulus packages, continued spread of the virus, geopolitical tensions between US and China, and a fragile rally in the stock market among others.

Key Events Ahead

Monday

  • AiG Performance of Mfg Index, Commonwealth Bank Manufacturing PMI and TD Securities Inflation (Australia)
  • Caixin Manufacturing PMI (China)
  • Consumer Price Index (Switzerland)
  • Markit Manufacturing PMI (Germany)
  • Markit Manufacturing PMI (UK)
  • Markit Manufacturing PMI, ISM Manufacturing Employment Index, ISM Manufacturing PMI, Prices Paid and New Orders Index (US)

Tuesday

  • Tokyo Consumer Price Index (Japan)
  • Retail Sales, Imports, Exports, Trade Balance and RBA Interest Rate Decision and Rate Statement (Australia)
  • Trade Balance (Germany)
  • Markit Manufacturing PMI (Canada)
  • GDT Price Index (New Zealand)

Wednesday

  • AiG Performance of Construction Index and Commonwealth Bank Services PMI (Australia)
  • Participation Rate, Labour Cost Index, Employment Change and Unemployment Rate (New Zealand)
  • Caixin Services PMI (China)
  • Markit PMI Composite (Germany)
  • Markit PMI Composite and Retail Sales (Eurozone)
  • ADP Employment Change, Trade Balance, Markit Services PMI, Markit PMI Composite, ISM Non-Manufacturing New Orders Index, PMI, Employment Index and Prices Paid (US)

Thursday

  • Gross Domestic Product (Japan)
  • RBNZ Inflation Expectations (New Zealand)
  • BoE Monetary Policy Report, MPC Vote, Asset Purchase Facility, Minutes, Interest Rate Decision and Governor Bailey Speech (UK)
  • Industrial Production and Factory Orders (Germany)
  • Jobless Claims (US)
  • Financial Stability Report (UK)

Friday

  • Overall Household Spending (Japan)
  • RBA Monetary Policy Statement and Ellis’ speech (Australia)
  • Trade Balance, Exports and Imports (China)
  • Leading Economic Index (Japan)
  • Nonfarm Payrolls, Average Hourly Earnings, Labour Force Participation Rate, U6 Underemployment Rate and Unemployment Rate (US)
  • Unemployment Rate, Participation Rate, Average Hourly Wages, Net Change in Employment, and Ivey Purchasing Managers Index (Canada)

By Deepta Bolaky
 @DeeptaGOMarkets

Tuesday, 04 August 2020 
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0.003 0.054 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0


Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice. For more information of trading, check out our forex trading courses.

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